How the new Procurement Act and Median Pricing are impacting the Thai healthcare market

According to the World Health Organization, Thailand’s public healthcare expenditure is predicted to grow six percent annually from 2016 to 2020. New legislations such as the Government Procurement and Supplies Management Act 2017 and Median Pricing are expected to curb the mounting costs, yet they also bring uncertainty to the market.

In this article, I will look into these new legislations in more detail, as well as what their impact will be on the market and how healthcare companies can remain competitive.

The new legislation was introduced in Thailand on August 23 this year, replacing the 1992 Prime Minister's Office regulation on procurement. The Procurement Act requires about 9,000 state agencies, including public hospitals, throughout the country to comply with new procedures with the aim of increasing transparency in the government’s procurement processes. Overall, the Procurement Act is positive and emphasizes worthiness, transparency, effectiveness, efficiency and monitorability in the procurement process.

And while the new legislation affects many of the country’s key economic sectors, it is expected to significantly impact the nation’s healthcare and pharmaceutical supplies segments. Under this new Act, the state-run Government Pharmaceutical Organization (GPO), which also manufactures generic versions of originator drugs produced by multinational pharmaceutical companies, has gained additional responsibilities for the procurement of pharmaceutical products. Overall, we expect the Procurement Act and subsequently issued sub-acts to accelerate the transition towards generics.

Meanwhile, Median Pricing is also impacting the Thai healthcare market.

The implementation of median prices has in fact gained momentum over the last six months.

Thailand’s Ministry of Public Health determines the maximum procurement price or “median price” for each drug identified under the Median Pricing. If manufacturers cannot offer median priced products at the stipulated median price or lower, they will not be allowed to sell them to government hospitals.

The Median Pricing list for 2018 includes 564 molecules in its scope, plus another 175 items which were identified as products with procurement problems caused by previous median pricing. Out of the list of 564, roughly 250 molecules were pending from the 2017 drug list framework, whilst 86 molecules have been newly added. As of early December 2017, approximately half the molecules in scope for 2018 have already been announced, just reemphasizing the momentum of the process.

Many decision makers in healthcare companies have reached out to me with the question: “How will this impact the Thai healthcare market and my business?”

The truth is, no one has the answer yet, particularly as there is a lack of clarity over the speed of implementation of further Median Prices and the practical implementation of the Procurement Act.

The current regulations will add further price pressure, especially to genericized molecules.

On top of that, we expect to see an increase in e-procurement as hospitals are required to conduct annual purchase plans. If the annual plan reveals a purchase over THB 500,000 (approximately USD 15,000), the purchase process will have to go through e-procurement, thus adding a further challenge for genericized products.

Although certain generic alternatives may be effective in treating people suffering from certain diseases, healthcare professionals have expressed that originator (and more complex) products are still necessary to combat certain illnesses and life-threatening diseases as they sometimes offer additional qualitative benefits. As recently publicly expressed by the Director of a large Thai hospital: “We have a mission to make sure that there will not be any medicine shortages and that the hospitals will get top quality but cheap medicines.”

As plans for 2018 are being finalized, companies must prepare themselves for the uncertainty in the market. I foresee that healthcare companies need to promptly address the decreasing demand for originator products.

A key focus and discussion point will be the optimal size of future sales teams given the smaller market opportunities for genericized portfolios. The current market dynamics do require to rethink the portfolio and channel strategies and look for effective sales team structures, especially for companies with genericized product portfolios.

Companies should reassess their existing salesforce and possibly restructure the sales team to remain competitive.

Other options to be considered include to add a second brand to the portfolio or to focus on private channels.

Finally, healthcare companies will find themselves asking the imperative question of whether they should “make” (undertake the sales and commercialization aspects of the product on their own) or “buy” (outsource it to an experienced business partner to help overcome resource limitation but at the same time maximize growth).

About the author

John Clare is DKSH’s Vice President, Business Unit Healthcare, Thailand. He has worked for DKSH for more than 18 years and amassed vast experiences throughout Asia